Queen Elizabeth teaches diversification

Celebrations for Queen Elizabeth’s 92nd birthday kicked off around the Commonwealth last week (Australia celebrated by hosting a Royal Commission). And even though her family still call her “Your Majesty”, a lot sure has changed since Her Royal Highness was born. Back in 1926, Bethlehem Steel and U.S Rubber were two of the biggest companies in the world – a combined worth of about $12 billion (inflationary adjusted). Today, Apple’s and Microsoft’s combined worth is over 100 times larger: $1.7 trillion. Back in 1926, £20,000 was a standard day of commonwealth government bond trading. Today, the bond industry is worth $100 trillion.

These are big numbers being thrown around, signifying an enormous growth of wealth. And of course, this growth in wealth is well and truly available to everyone through stock and bond markets. However, capturing that wealth is another thing. Look at this eye-opening finding from the Australian market. Over the course of 16 years, the ASX300 returned 8% per year. However, if you missed the best 25 trading days over those 16 years (0.6% of trading days), your return would only be 1.7%. In other words, if you wait around to pick a winner, there is a 99.4% chance that you are going to get it wrong. It’s not about timing the market, it’s about time in the market.

So if anyone can teach us about diversification, it’s Queen Elizabeth. After all, she rules 53 countries.